Abstract

PONCE RODRIGUEZ, Raúl Alberto. Regional Externalities and the Provision of Public Goods in a Descentralized System of Subnational Governments. Frontera norte [online]. 2010, vol.22, n.43, pp.159-185. ISSN 2594-0260.

In this article, we develop a probabilistic voting model for the provision of local public goods in a decentralized system of local governments. In our economy, the heterogeneity of preferences for local public goods leads to a social choice problem that is solved through a state-level election. Our theoretical model provides empirically verifiable propositions about the determinants of public spending. In particular, our model suggests that in the absence of regional externalities affecting local public goods, distribution of income and the population in the locality explain the size of public spending. When regional externalities do exist, income distribution and the price of public goods in the overall economy, not just the state's economy, determine public spending by the state. Our model also identifies certain income configurations in the economy that can lead to asymmetries in the supply of local public goods as a result of the reduction in the average per-capita cost of public goods.

Keywords : Local public goods; interregional externalities; electoral competition; decentralized system of governments; regional development.

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